Get credit where it’s due, but use it wisely

CREDIT SCORING has become a key part of our financial lives. It’s not just about whether you can get mortgages, credit cards and loans. It can also affect mobile phone contracts, monthly car insurance and bank accounts. Even if you are accepted, we live in a “rate for risk” world, so credit scoring then dictates what you pay, too. Many people come unstuck on this. They apply for today’s record cheap rates, but find they are charged more. So here’s what you need to know.

UNIVERSAL CREDIT RATING

You don’t have a universal credit rating — there is no blacklist of banned people. Each lender scores you differently and secretly. Their aim is to see if you match their profitable customer wish list. A key part is assessing the risk of non-repayment. If that is high, many won’t lend to you; but some specialist lenders will like you more as they can charge you higher.

Yet even those who are good risks can be rejected, because the lender thinks you won’t make it money.

WHATTHEYKNOWABOUTYOU

Lenders assess you with three key pieces of information:

Your application form. Many underrate how crucial this is. Be consistent on each application form, eg job title, salary. Inconsistencies can lead to rejection as you hit a fraud score trigger.

Any past dealings with you. A lender you’ve banked with knows more about your behaviour than others. This can work for or against you.

Your credit reference files. These come from either Equifax, Experian or Callcredit and contain info on the electoral roll, court judgments, what credit applications you have made, products you have and if you have paid on time.

However, they don’t know everything. They don’t know your criminal record, salary, student loans, declined applications and more — don’t get too conspiracy theorist about it.

HOW TO MAKE YOURSELF MORE ATTRACTIVE

Getting accepted for credit is like going on the pull — like people, different lenders find different things attractive, but there are some cosmetic changes that work for most. Here are 10 tips which should help you:

Get on the electoral roll. If not, getting credit is tough. Check if you’re on it and apply via www.aboutmyvote. co.uk. If you’re not eligible, write a notice on all the credit files that you have proof of residency.

Stability is good. If possible, put a landline, not mobile number, on applications.

Beware of over-applying. Too many applications for products, especially in a short space of time, can hurt. So if you are about to get a mortgage, don’t apply for lots of credit cards just beforehand. One problem is often that the only way to know what rate you’ll get is to apply, so the system is antishopping around. I’ve given evidence against this at Parliament on many occasions, but little has been done. So to help I’ve built a free www.moneysavingexpert.com/eligibility checker tool which gives you odds of getting different credit cards.

Time it right. Problems stay on your file for six years, applications for one.

Never miss or be late on repayments. Small errors can hurt large.

Don’t let “paid-for credit scores” overly worry you. In recent years credit reference agencies have started to flog these, but don’t take too much notice. They are only based on your credit file, not the other info lenders look at — and remember each lender scores differently.

Payday loans can kill mortgage applications. Some mortgage underwriters won’t lend to anyone with payday loans. There are special tricks those looking for mortgages need — full help in my free First time Buyer’s Mortgage booklet at www.mse.me/FTB.

Deal with unfair defaults. First, go to the firm that put them there and ask it to remove them. If not, ask for a “notice of correction” to be added to your credit file where you can explain why it’s unfair and appeal to the Financial Ombudsman.

Check for address errors. An active, but unused mobile phone registered to your old address could cause a mortgage rejection.

Don’t withdraw cash on credit cards. This is expensive and seen as evidence of poor money management. For more credit boosting tips see www. mse.me/creditrating.

HOW TO REBUILD YOUR CREDITWORTHINESS

Credit scoring aims to predict future behaviour based on your past. Those with a poor history therefore do poorly, as do those with little credit history, as it makes predicting tough.

The perverse solution is to get credit and use it well. The easy route is a specialist credit rebuild card. These have awful 30 per cent-plus APRs. So just do around £50 a month of spending, then repay in full each month. After six months, things should improve. Card firms that offer these include Capital One, Aqua and Barclaycard.

Even small errors on your www. experian.co.uk, www.equifax.co.uk and www.callcreditstatreport.co.uk files can kibosh applications, so check all annually and before key applications, eg, a mortgage. While you will see you have checked it on your file, lenders won’t, so it won’t impact your score.

While you have a legal right to check each file for £2, you can sign up for a month’s credit monitoring trial, which lets you do it for free. Better still, sign up via a cashback site like Quidco or Topcashback and you can be paid for signing up to the trials.